November 2016 Market Report: Home Values Growing at Fastest Pace Since 2006
- Home values rose 6.5 percent year-over-year in November, to a Zillow Home Value Index of $192,500, the fastest annual pace of appreciation since August 2006.
- Rents rose 1.5 percent over the past year, to a Zillow Rent Index of $1,403 per month.
- The number of homes for sale nationwide fell 5.9 percent year-over-year in November, the 22nd consecutive month of annual inventory declines.
As 2016 comes to a close, annual growth in rents has stabilized, the number of homes listed for sale is at its lowest point on record and annual home value growth is accelerating. Looking ahead into 2017 and beyond, all three of these trends are likely to continue influencing each other and the market as a whole.
In November, median U.S. home values rose 0.6 percent from October and 6.5 percent year-over-year to a Zillow Home Value index of $192,500, according to the November Zillow Real Estate Market Reports, the 52nd consecutive month of annual growth and the fastest pace since August 2006. In each month between January and August, the annual pace of U.S. home value growth was fairly consistent, never growing slower than 5.6 percent and never higher than 5.9 percent in any given month. But beginning in September, the annual U.S. growth rate has noticeably accelerated – to 6 percent in September, 6.3 percent in October and now 6.5 percent.
There are two potential main drivers of this acceleration, one local and one more widespread.
Local Dynamics
The U.S. housing market is really just a collection of dozens of smaller local markets that are all moving up and down to varying degrees and driven by various local factors including the health of their local economy and local supply and demand dynamics. A broadly improving national economy, in which job opportunities and wages are growing, is echoed in the smaller, local economies of many – but not all – individual metros. Of the 35 largest metro markets covered by Zillow, 19 were growing faster year-over-year this November than they were in November 2015. Markets in which the pace of appreciation has picked up include places as diverse as Seattle, Detroit, Philadelphia and Orlando. A 20th market (Kansas City) was growing at roughly the same pace this year as last.
More markets exhibiting faster growth in home values will translate into the acceleration we’ve observed lately at the national level. Home values in all 35 of the largest metro areas analyzed grew year-over-year to some extent in November. Still, at the same time, the housing market has slowed in 15 of the 35 largest markets compared to this time last year, including several markets that are still exhibiting strong growth, just at a slightly slower pace. Areas growing at a slower pace this year include the Bay Area (San Francisco and San Jose), Miami, Texas (Austin, Houston and Dallas) and Denver.
A National Concern
The second, more widespread reason why national home value growth has been picking up lately comes down to inventory – or lack thereof. As of November, there were 1,422,084 homes listed for sale nationwide, down 5.9 percent from a year ago and the lowest number recorded since Zillow began tracking the data in January 2010. Inventory has fallen year-over-year for 22 straight months, and save for a brief period of annual increases beginning in mid-2014, in 51 of the past 60 months. Inventory fell year-over-year in November in 27 of the largest 35 metros.
And even in those markets in which inventory rose, it’s likely more because it couldn’t realistically fall much lower. Inventory in Las Vegas, for example, rose 26 percent year-over-year in November, to 13,659 homes for sale. That’s a big jump, but even after that bump, Las Vegas inventory remains more than 44 percent below recent peak levels reached in mid-2011. In all 35 of the largest metros analyzed and the nation as a whole, inventory in November was more than 25 percent below highs reached since January 2010.
Despite the lack of homes to buy, sales have nevertheless been surprisingly strong lately, an indicator of just how strong demand is. And when demand is high but supply is low, prices overall can typically be counted on to go up – which is exactly what we’ve been seeing.
Opportunity in Stability
Finally, a stabilizing rental market could have a big impact on overall housing demand going forward. Throughout much of 2015, annual rental growth was incredibly strong, peaking at 6.6 percent in July 2015 – much faster than the pace of wage growth over the same time, and a big contributor to widespread rental affordability issues. Since then, annual growth in rents has slowed considerably. As of November, the U.S. median rent was $1,403 per month, according to the Zillow Rent Index, up just 1.5 percent from a year ago and more in line with the pace of wage growth, helping ease (somewhat) those same affordability concerns.
Over the past three months, even as year-over-year home value growth has accelerated, annual rent growth has largely stabilized at 1.4 percent in September and October and 1.5 percent currently. This slowdown and stabilization is likely welcome news to those renters struggling to both manage rising rental costs and trying to save enough money for a down payment to make the jump into homeownership. If this stabilization continues, more renters could soon enter the pool of would-be home buyers, potentially boosting demand. But at the same time, a more sedate rental market could take away some of the urgency some renters may feel to immediately buy a home and lock in a more stable monthly payment, keeping them renting longer. Either way, changes in the rental market bear watching closely as an indicator of future demand in the for-sale market.
In general, home value growth continues to be strong, supported by solid buyer demand and still-limited for-sale inventory in many markets across the country. And while some of the raw numbers may look the same, conditions today are very different than the ones we saw back in 2006 – the last time we saw such a fast rate of appreciation. Gone are the days of rampant real estate speculation and loose mortgage credit, replaced by sound economic fundamentals.